Mayor's planned property tax breaks could hurt many renters, small businesses

Many Chicago renters, small business owners would bear extra burden from Emanuel's property tax plan.

Mayor Rahm Emanuel has framed his record $588 million property tax hike plan around the notion that it will include breaks for those of modest means, but hundreds of thousands of renters who fit that description are still likely to pay more because they can't benefit from the mayor's safeguards.

The mayor has vowed to make sure "that the burden is borne by those who can best afford it," evoking images of thriving downtown businesses and fancy high-rise condominiums. But also in the crosshairs of the tax hike would be mom-and-pop businesses and a large number of apartment dwellers whose landlords typically build property tax expense into the rent.

Emanuel has cast a populist shine on his proposal by adding a pledge to insulate some homeowners completely, and others partially, from the added price of tax hikes. But the convoluted property tax system is constructed as a zero sum game, so any breaks bestowed on one group of taxpayers add to costs for others.

In essence, those who don't qualify for a break under Emanuel's plan could be hit with a double tax whammy. First, they have to bear the cost of a higher tax. Second, they have to pay a little more on top of that to make up for tax breaks Emanuel wants to give to homeowners.

What's more, the mayor's plan has broad impact on tax bills because doubling the homeowner's exemption would apply to more than just levies earmarked for City Hall. The losers in any tax burden shift would also have to pay more for other citywide public bodies, in particular Chicago Public Schools, which consumes 54 percent of the take from property tax bills.

"My concern is for the small businesses," said Ald. Scott Waguespack, 32nd, whose ward straddles trendy North Side neighborhoods. "Their taxes go up, a lot of the small businesses work on the fringe. …They are already looking at huge leases — $5,000, $10,000 in some areas. They're barely making it, and this will push them over the edge."

At present, the assessed value for every home in Cook County that is occupied by its owner is reduced by $7,000 before taxes are calculated. Emanuel wants to double that so-called homeowner's exemption to $14,000 for people living in the city, arguing it would ease and in many cases eliminate the effects of his tax hikes for those least able to afford them. The proposal calls for the increases to be phased in over the next four years.

Owners of homes worth $250,000 or less wouldn't see their bills rise at the end of four years, and those worth significantly less would see a reduction, according to figures released by the administration. The city also says people with pricier homes would be hit with an increase but less of a hike than they would have otherwise faced.

Any examination of Emanuel's plan to date comes with more than one caveat.

While Emanuel has made public an outline of how it would work, the plan requires approval from Springfield. To date, no such legislation has been introduced.

But an analysis based on the mayor's broad outline for the increases in taxes and homeowner's exemption shows that the changes would shift $190 million in the overall tax burden from homes to commercial properties, according to a Tribune analysis.

Alexandra Holt, Emanuel's budget director, said commercial property owners on average could expect a 17 percent increase in tax bills by 2019 if the mayor gets everything he wants. That increase would be less, 12 percent over four years, if commercial owners weren't shouldering part of the burden for the expanded homeowner's exemption.

Holt's numbers, however, appear to slightly understate the impact because they take into account only about 90 percent of the total tax increase her boss is seeking. She did not factor in $45 million in extra taxes to benefit Chicago Public Schools. That would push the increase to 18 percent for commercial properties, according to the Tribune analysis.

The Building Owners and Managers Association of Chicago agreed with the higher estimate. The trade group says it considers the proposed expansion of the homeowner's exemption unfair and has vowed to fight it in Springfield.

Among those likely to be hit with big increases in tax bills are owners of large rental buildings, and also owners of smaller buildings that the owner does not live in.

"We're concerned that the shift will occur not just to the businesses, the commercial and industrial property owners, but it will also shift to those people who do not own their own home, which may in fact be people who are more economically challenged renters," said Laurence Msall, president of the nonpartisan Civic Federation budget watchdog group.

More than half of the city's residents live in rental units, which account for a majority of the city's housing stock, according to statistics from the U.S. Census Bureau.

What's more, the census data show that more than half of the Chicago families living in rental units spend more than 30 percent of their income on housing — a benchmark often used to measure economic stress.

Because renters by definition don't own the places where they live, they can't benefit from an expanded homeowner's exemption. "In effect, some of Chicago's poorest residents may end up having to pay a higher housing cost in order to provide the level of exemption that the city is discussing," Msall said.

Holt, the city budget director, said realities of city housing patterns would likely prevent such an outcome. She said large numbers of low-income residents are concentrated in neighborhoods with high apartment vacancy rates, making it hard for landlords to push up rents without losing tenants.

She also said many of the rental units in less affluent neighborhoods are in small apartment buildings where the owner also lives and therefore would be eligible for the expanded homeowner's exemption. But she acknowledged that only a quarter of the city's renters live in buildings that may qualify for the exemption.

Holt acknowledged that some renters would feel some pain from the combination of the tax hike and broadened exemptions, but she predicted it would be minimal. "The people who are going to pay the most are the people in the more affluent neighborhoods," Holt said, contending average rents might go up $20 after four years.

Gauging the real-world impact of Emanuel's plans on any particular property is made all the more difficult because projections from the city and its critics are based in great measure on assessment values that will be outdated by the time next year's city tax bills are calculated.

The Cook County assessor's office is reassessing city properties for the first time in three years, and values are expected to jump — dramatically so in upscale North Side neighborhoods. Areas where assessments have increased faster will bear more of the increased burden but on a property-by-property basis that could vary significantly.

The only thing clear so far about Emanuel's property tax plans, experts say, is that it adds another layer of complexity to a baffling system that most taxpayers comprehend on a par with quantum physics.

"Illinois has a long history of complicating and obfuscating who's paying property taxes and why," Msall said. "There's no confidence by most public officials in the assessment process to begin with."

There is something of a circular nature to the steep city financial problems at the root of the mayor's pitch for higher taxes.

Chicago needs more money — and fast — to repay huge debts to underfunded public worker pension systems that have undermined the city's credit rating. And those systems are in need of financial life support because former Mayor Richard Daley for years starved them of funding so he could spend the money on other priorities and still avoid unpopular property tax hikes.

As a result, property owners in Chicago pay far lower taxes on average than those in the suburbs. That gap is likely to narrow if Emanuel's tax plan goes into effect, but city residents would still bear one of the lowest property tax burdens of any community in Cook County.

Twitter @bobsecter

Twitter @ReporterHal

Copyright © 2018, CT Now